Langton Capital – 2018-02-27 – Gregg’s, SSP, rents, paper & straw charges & other:
Gregg’s, weather, rents, cup & straw charges & other:
A DAY IN THE LIFE:
Well many of us will have woken up to the hiss of falling snow this morning but, whilst it’s to be expected at this time of year, it’ll be something of a minor miracle if the trains run on time today.
Admittedly it’s March in a couple of days and we should have seen the back of the worst of the winter weather but a pound to a penny the news this evening will be full of stories of transport delays, stranded motorists and the rest and the junior journos will already have been told to wrap up warm and been despatched to stock up on film of kids sledging down hills whilst twagging off from school.
Indeed, our own youngest is already scouring the school website in the hope that the gates will be locked this morning but they won’t be and, with that in mind, we’d better get down to work. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• See ‘QUESTIONS’ section at foot of email where we’ll pose an ad hoc series of questions that have occurred to us recently. We start with Restaurant Group and what will it do with its dividend alongside looking at LfLs and how they can be disaggregated between price and volume. Also see our earlier comments on ‘doing a Dignity’ with regard to gouging, margin enhancement etc.
• Gregg’s FY numbers. Group now has 1,850 retail outlets. Says total sales +7.4% to £960m with LfLs up 3.7%.
• Gregg’s reports PBT of £81.8m vs £80.8m last year. Says is seeing ‘strong cash generation supporting investment programme for further growth’
• Gregg’s reports dividend +4.2% at 32.3p. EPS is 63.5p, up from 60.8p.
• Gregg’s reports ‘further improvements to product range, with specific focus on hot drinks and hot food’. It is also pushing healthier options. It says its ‘Balanced Choice’ range accounts for more than £100m of sales.
• Gregg’s opened 131 shops last year and closed 41.
• Gregg’s says it is ‘encouraged by the start to the year’ and is seeing LfL sales +3.2% in the first 8wks of the new year. The group says ‘in 2017 we delivered another strong performance in challenging economic circumstances as rising inflation impacted both our own costs and customers’ disposable income.’
• Gregg’s concludes ‘whilst the UK consumer outlook remains challenging, we are encouraged by the start to the year. 2018 will be the peak year for investment in our supply chain as we create the platforms for further growth. We also plan to open a record number of new shops as we implement our plan to grow Greggs as a leading food-on-the-go brand.’
• Gregg’s chairman Ian Durant reports ‘Greggs continues to demonstrate its resilience in the face of economic uncertainty. This environment seems unlikely to change in the short term as the UK negotiates its exit from the European Union, with the associated risks to consumer confidence and further cost inflation. We are alive to these risks and working hard to mitigate the possible impacts where we can.’ Mr Durant says ‘Greggs continues to be a strong business with a great team. I am confident that we will make further progress in the year ahead.’
• SSP hosts its AGM today. There is no trading update.
• The Scottish government has recommended that the minimum price for a unit of alcohol should be set at 50p. The minimum pricing scheme will be enacted in May after going before MSPs at Holyrood.
• Starbucks has become the first UK coffee chain to trial a ‘latte levy’ and will now charge 5p on takeaway coffee cups — a move it hopes will help change behaviour and encourage the use of reusable cups. Research by the coffee chain revealed that almost half (48%) of consumers said they would definitely carry a reusable cup to avoid paying the extra 5p. The three month trial is taking place in 35 London branches of Starbucks.
• Figures released by the Federation of French Wines and Spirit Exporters (FEVS) show that France’s wine and spirits exports enjoyed record growth in 2017, thanks mainly to demand from the US and China. Export sales reached €12.91bn ($15.94bn), up 8.5% on 2016, the federation said in a press release. Volumes were up 5% reaching almost 200 million cases.
• KFC’s UK restaurant estate got back to business as normal, following the company’s supply chain woes. KFC has apologised for the crisis, even taking out full page advertisements in the national newspapers.
• Northern Monk Brewing Co has launched its crowdfunding campaign, seeking investment for eight new 10,000 litre fermentation vessels and a new state of the art packaging line.
• The Society of Independent Brewers (SIBA) is to set to create a marketing ‘Code of Practice’ for its members. Jaega Wise, SIBA South East Elected Director stating: ‘he issue of sexist & discriminatory beer marketing has been raised at Board level and will be discussed at BeerX. Members might wish to consider all their current branding, even where long standing, and make plans to change any which might be considered inappropriate by today’s consumers’.
• Coca-Cola is to begin a £10m advertising campaign to support a revamp of diet Coke in the UK. Aedamar Howlett, the group’s director for Coca-Cola GB and Ireland has said: ‘One of the key things for us is to invest heavily into driving the growth of all our zero sugar and light drinks and across our portfolio’, as the group looks to push its healthier options.
• Craft Union Pub Co, the wet led arm of Ei Managed Operations, has announced that it plans to accelerate its nationwide expansion, celebrating its 200th pub opening.
• According to Sky News, Maplin is locked in a 48-hour battle to avoid administration after talks with potential buyer, EWM, are progressing too slowly. Maplin employs around 2,500 people in hundreds of sites.
• Applebee’s in the US to close 60-80 restaurants in what observers believe will be a turnaround year.
• In 2017, Hammerson increased rents in its shopping centres despite retailers getting pressured by online shopping. The company’s net rental income rose 7% to £370.4m, with net rental income at its UK shopping centres growing by 1.8%.
HOLIDAYS & LEISURE TRAVEL:
• Travelopia plans to sell the 10 brands in its education division with the company saying proceeds will be reinvested across the group to ‘boost further strategic growth of remaining businesses.’ The brands include UK-based Travelbound, SkiBound, JCA and World Challenge.
• UK train and airline companies have announced cancellations as a ‘contingency’ due to the cold Siberian weather over the country. Southern and eastern England have been given yellow and amber warnings for snow throughout Monday and Tuesday.
• HotStats reports US hotel profit per room down 0.5% in January despite RevPAR increasing 0.6% to $138.17. Occupancy for the month was up 0.6% to 67.9% and ADR was up 0.3% to $203.42.
• The sale of Anbang Insurance Group’s US hotels is under consideration according to China’s insurance regulator, who seized the company last week. The regulator plans to ‘hold on to the Waldorf [in New York], continuing with the insurer’s plan to convert more than 1,000 of the hotel’s 1,400 guestrooms into condominiums’.
• Per Pragma, premium fitness class innovations are being touted as the most exciting growth stories in the overall fitness market. Recent cash raises by indoor cycling concepts include; £3m raised by Psycle, a £6m investment in Frame and a £6.6m fundraise by 1Rebel. Pragma claims that this segment has low barriers to entry, but that the quality of instructors provides a key differential.
• Aston Martin posted its first annual profit since 2010 last year, selling just over 5,000 vehicles. The company made a pre-tax profit of £87m, compared to a £163m loss in 2016. The company also confirmed it was considering a stock market listing.
FINANCE & MARKETS:
• BBA reports that mortgage approvals rose to 40.1k in the UK in January, up from 37.0k in December
• Sterling down at $1.3961 and €1,1325
• Oil little changed at $67.45
• UK 10yr gilt yield unchanged at 1.51%
• World markets: UK higher yesterday with Europe & US also higher. Asia up in Tuesday trade
• Brexit, politics etc.:
o Mr (call me sensible) Corbyn sees path to power, gets business backing for his single market comments.
o Sky reports that he has pulled something off that appears to please both the unions and bosses
o Calling it a customs union, though, rather than a single market. Would still avoid a Hard Border in Ireland
o Not sure the EU will buy it but, for the moment, Labour may be able to attract Tory dissidents, potentially inflict defeat on government.
o As mentioned yesterday, botched government Brexit debacle could usher in hardest-ever left wing socialist government in UK. Some voters see this as a price worth paying to stay in the EU and on the right side of history.
o CBI says Labour seems to put “jobs and living standards first”. Not too keen on nationalisation etc. however. See ‘price worth paying’ above.
o Evening Standard says Mr Corbyn had been gifted an “open goal” by the Tories.
o Times says Corbyn has ‘weaponised’ Brexit. Says spooked Liam Fox is to criticise business for supporting Labour
o Credit Suisse is to move c250 banker jobs out of London under the 1st phase of its Brexit planning per Bloomberg
PRIOR DAY TWEETS:
• Later tweets: Sunday Times reports Greene King attempting to exit Loch Fyne some 11yrs after paying £68m for the casual diner.
• Beast from the East. Sunshine & snow. To be replaced later by snow and snow. Beer gardens to remain mothballed for the time being
• Discounting still heavy & it’s March this week. Prezzo 30% off food, Pizza Express 25% off. Road back looking tricky, weather unhelpful
• Bank Dep. Gov. Dave Ramsden sees need for rate rise sooner rather than later. Unemployment rising but inflation rise fears predominate
• Tusk says Tory fudge based on ‘pure illusion’. Corbyn doing ‘Mr Reasonable’. I.e. keeping gob shut. Path to Power opening up
• Botched government Brexit debacle could usher in hardest-ever left wing socialist government in UK. Corbyn doing Mr Reasonable impression
• Milk price edges back, rally more than stalled. Price no 31ppl. Down >1p in 2mths but well above 20ppl low of 18mths ago
• ABF said Primark suffered from warm weather. We may have just the answer for you. Beast from East looms etc.
• Times says Tesco has secret plan to launch discount brand. Hum. Margins been too high for too long, then? See our ‘Do a Dignity’ piece
• Maybe if Labour had a more sensible offer, Tories would be out for 3 terms on back of botched Brexit debacle. Thanks Mr Cameron
• Langton has got the keys to its new office. Triumph of persistence over bureaucracy We should be moving in early next week but, for the moment, please communicate via email. MIFID II is now in operation.
QUESTIONS, QUESTIONS (1): Restaurant Group’s Dividend.
• Will the company cut its dividend when it reports FY numbers next week? One might argue that it certainly should. Sales down, number of operating units down, LfLs down, profits down and earnings down; why not the dividend? Doesn’t the group have other uses to which it could put the cash?
QUESTIONS, QUESTIONS (2): How high is the ‘quality’ of LfLs driven by price increases
• Langton paid £17.40 for 3 beers in a pub on Cornhill last week. That’s £5.80 per pint. That’s an irritant and, we would suggest, if London pub companies are driving 3% to 5% LfL growth then a chunk of this is coming from pricing. This is arguably not sustainable. Margin expansion, as well as annoying customers, is finite. Drop us a line if you would like us to add further comment. And name names.
START THE DAY WITH A SONG:
Yesterday’s song was Tainted Love by Soft Cell. Today, who sang:
Up where the mountains meet the heavens above,
Out where the lightning splits the sea
I could swear there is someone, somewhere
RETAIL NEWS WITH NICK BUBB:
• Greggs: Today’s finals from Greggs show that the business is still on a roll, as it focuses on adding more hot drinks and hot food to its menu. Last year underlying operating profits were only 5% up, to £81.7m, because of cost and margin headwinds, but the message today is that “Whilst the UK consumer outlook remains challenging, with industry-wide cost pressures expected to moderate but continue in the year ahead, we are encouraged by the start to the year. Company-managed shop LFL sales in the eight weeks to 24 February have grown by 3.2% and total sales are up 6.2%”.
• Inchcape: The finals from the premium car dealer Inchcape today also show good progress, although the business mix is unusual, with 80% of profits coming from Asia Pacific and Emerging Markets. Last year underlying operating profits were 9% up on a constant currency basis to a hefty £407.5m. But the message is that “In 2018, we anticipate a more challenging year given continued supply and demand imbalance in our Retail markets, particularly over the first half of the year, as well as new vehicle decline in Singapore, despite continued momentum across the rest of our businesses. Overall, we expect to deliver a resilient constant currency performance over 2018”.
• News Flow This Week: Tomorrow brings the monthly GFK Consumer Confidence index, the eagerly-awaited Tesco and Booker EGM’s and the Travis Perkins (Wickes) finals. The Howden finals on Thursday (as we move on into March) will then give us a further insight into the outlook for the ubiquitous “white van man”.